Forex - Weekly outlook: December 12 - 16

Forex – The euro was modesty higher against the U.S. dollar on Friday, paring some of the week’s losses as a two-day summit of European Union leaders concluded with an agreement to introduce tighter fiscal controls across the single currency bloc, but fell short of securing changes to the EU treaty.

EU leaders agreed to increase the financial backstops to countries with debt problems by channeling EUR200 billion of funds to the International Monetary Fund. However, they postponed decision on increasing the capacity of the European Stability Mechanism until March.

U.K. Prime Minister David Cameron vetoed changes to the EU treaty after failing to secure concessions, meaning new fiscal rules will have to operate as an intergovernmental agreement.

Uncertainty over whether the European Central Bank will now play a bigger role in stabilizing the region’s bond market kept investors on edge.

On Thursday, ECB President Mario Draghi quashed expectations that the central bank would step up its bond purchasing program once a political solution to the debt crisis reached.

The ECB cut its benchmark interest rate by 0.25%, bringing rates to a record low of 1%.

Meanwhile, the Bank of England kept interest rates steady at a record low 0.5%, where they have been since March 2009 and announced no change to its asset purchase program, which it increased to GBP275 billion in October.

Also Thursday, the U.S. Department of Labor said that the number of people who filed for unemployment assistance in the U.S. last week fell to the lowest level since late February, tumbling to 381,000 after a reading at 404,000 the previous week.

In the week ahead, investors will be keeping a close eye on the borrowing costs of troubled euro zone states, as a rise in borrowing costs could prompt a rating cut after Standard & Poor’s warned that it may carry out a mass downgrade of 15 euro zone members, including France, Italy and Spain.

Italy and Spain are both set to auction government bonds in the coming week.

Markets will also be closely watching the Federal Reserve’s policy setting meeting on Tuesday, as concerns over the impact of the euro zone’s financial crisis on global growth continue to weigh.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, December 12

New Zealand is to publish a report on consumer sentiment, an important indicator of economic health. Australia is to publish official data on home loans, a leading indicator of demand in the housing market, as well as data on the trade balance.

Japan is to produce preliminary data on machine tool orders in addition to official data on household confidence and the corporate goods price index. Elsewhere, Switzerland is to release government data on the employment level, an important indicator of economic health.

Later in the day, Bank of Canada Governor Mark Carney is to speak; his comments will be closely watched for any clues to the possible future direction of monetary policy.

Also Monday, the U.S. is to publish official data on the federal budget balance.

Tuesday, December 13

Japan is to release official data on tertiary industry activity, a leading indicator of economic health. Elsewhere, Australia is to release official data on housing starts as well as a report on business confidence.

The U.K. is to publish government data on consumer price inflation, which accounts for the majority of overall inflation, in addition to industry data on house price inflation, a leading indicator of strength in the housing market.

Switzerland is to publish government forecasts of economic growth, including key indicators of gross domestic product such as employment and inflation.

In the euro zone, the ZEW Centre for Economic Research is to publish a report on German economic sentiment, a leading indicator of economic health.

Later Tuesday, the U.S. is to publish official data on retail sales, the foremost indicator of consumer spending, which accounts for the majority of overall economic activity. In addition, the Federal Reserve is to announce its federal funds rate.

Wednesday, December 14

Australia is to publish a report on consumer sentiment, an important indicator of economic health. Meanwhile, Japan is to release revised data on industrial production.

Switzerland is to release official data on produce price inflation, a leading indicator of consumer inflation. In addition, the ZEW Centre for Economic Research is to publish a report on Swiss economic expectations, a leading indicator of economic health.

The U.K. is to produce government data on employment, including reports on claimant count change, the unemployment rate and average hourly earnings. Elsewhere, the euro zone is to release official data on industrial production, a leading indicator of economic health.

Canada is to publish an index of leading indicators, designed to predict the future direction of the economy, as well as a report on manufacturing sales, a leading indicator of economic health.

The U.S. is to produce official data on import prices and crude oil stockpiles.

Also Wednesday, the Organization of Petroleum Exporting Countries are to meet to discuss a range of issues regarding energy markets, including oil production levels.

Thursday, December 15

Japan is to publish official data on manufacturing and service sector activity, leading indicators of economic health. Australia is to produce a report on inflation expectations as well as data on new vehicle sales, a leading indicator of consumer confidence.

The euro zone is to publish preliminary data on manufacturing and service sector activity, leading indicators of economic health. Germany and France are also to release individual reports. The single currency bloc is also to publish official data on consumer price inflation and employment change.

Also Thursday, the ECB is to publish its monthly bulletin, while ECB head Mario Draghi is to speak; his comments will be closely watched for any clues to the possible future direction of monetary policy.

The Swiss National Bank is to announce its benchmark interest rate; the announcement will be followed with a closely watched press conference to discuss monetary policy. Switzerland is also to release official data on industrial production.

Elsewhere, the U.K. is to publish official data on retail sales, as well as reports on consumer inflation expectations and industrial order expectations.

Canada is to release government data on the capacity utilization rate, while the U.S. is to release a flurry of economic data, including the weekly report on initial jobless claims and data on producer price inflation. The U.S. is also to release official data on industrial production, capacity utilization, the current account, TIC long term purchases and manufacturing activity in New York and Philadelphia regions.

Friday, December 16

In the euro zone, ECB head Mario Draghi is to speak; his comments will be closely watched for any clues to the possible future direction of monetary policy.

Later in the day, Canada is to publish official data on the balance of foreign investment.

The U.S. is to round up the week with official data on consumer price inflation, which accounts for the majority of overall inflation.